Oregon experts offer economic advice

Statesman Journal
September 8, 2011By Michael Rose

President Obama today will present his plan for reviving an economy saddled with an unemployment rate of 9.1 percent and zero added jobs in August.

Obama is expected to seek renewal of two measures already in place: a cut in Social Security taxes and emergency aid for the unemployed. New proposals likely will include more spending for transportation projects and cutting taxes for companies that hire the unemployed.

The Statesman Journal asked Oregon economists and public interest groups for their ideas to get the economy moving.

John Mitchell of M & H Economic Consultants of Portland is a past chairman of the Oregon Council of Economic Advisors and former chief economist of U.S. Bancorp.

Lawmakers simultaneously will have to address long-term fiscal issues and the current economic woes, Mitchell said. One approach would be a long-term deficit reduction plan combined with upfront infrastructure spending, which would be financed by bonds backed by user payments and fees, he said.

Falling home prices, driven in large part by a surge in foreclosures, have had large repercussions. The housing market could be improved by making it easier for homeowners with mortgages backed by Fannie Mae and Freddie Mac to refinance, Mitchell said.

He also recommends reducing barriers to U.S. exports by passing previously negotiated trade agreements.

"These are national ideas not specific to Oregon, but speeding the housing rebound and increased trade would impact the state disproportionately," Mitchell said.

Jerry Gray and Nathan Sivers Boyce, economists at Willamette University, agreed that government spending is needed to stimulate demand.

Retrofitting buildings for energy efficiency is a promising economic stimulus because it is labor-intensive and relies on existing technologies, they said.

Upgrading the nation's electricity grid to a "smart grid" system likewise would provide jobs, fix infrastructure that is badly in need of repairs and increase energy efficiency.

Real mortgage relief is needed, they said. Programs intended to help struggling homeowners, such as the Obama administration's "Making Home Affordable" loan modification program, known as HAMP, has helped far fewer homeowners than projected.

Protecting homes from foreclosure would boost consumer confidence and increase disposable income for millions of homeowners with mortgages in default or underwater, they said.

Bill Conerly, an economist with Conerly Consulting LLC and the chairman of the Cascade Policy Institute, maintains that there's no quick fix for the economy.

The problems were years in the making, he said, and it will take years to repair the damage. A credible long-term fiscal plan for the United States is essential, Conerly said.

"Fear of future tax hikes, because of the deficits, are limiting consumer spending," Conerly said.

Instead of buying cars, electronics and clothing, families are putting their money into savings, he said.

Bank regulators also "need to dial back one notch" in their review of bank lending, he said. Experienced bankers are being second-guessed by regulatory agencies. On close calls, the regulators always are critical of business loans, Conerly said.

Steve Buckstein, founder and senior policy analyst at Cascade Policy Institute, suggested repealing taxes and lightening regulations on business.

The state should reduce or eliminate Oregon's corporate income tax, capital-gains tax, and estate tax — all of which feed the perception that the state is not business-friendly, he said.

Getting rid of red tape that impede business, such as "onerous permit reviews" and development charges that "have nothing to do with the actual impact of building on a community," should be considered, he said.

Charles Sheketoff, the executive director of the Silverton-based Oregon Center for Public Policy, said the president should unveil an "economic Marshall Plan for the American people" that would repair schools and upgrade transportation and other infrastructure.

States also need fiscal relief to avoid cuts to school budgets, which have driven layoffs and increased class sizes, he said.

Helping startup business obtain capital also could help generate jobs, Sheketoff said. As part of that effort, creating an "Oregon State Bank" could help, he said.

These public investments could be financed by "raising taxes on the super-rich and eliminating tax loopholes and subsidies benefiting the wealthy and corporations," Sheketoff said.

Nathan Sivers Boyce, Associate Professor of Economics, Willamette University and Jerry Gray, Professor of Economics, Willamette University

Guiding principles:

John Mitchell, M & H Economic Consultants of Portland

  1. Do not let the payroll tax holiday and investment incentives expire at the end of the year. (This is scheduled harm that could be avoided.)

  2. Pass the previously negotiated trade agreements that have been in the works for years and would reduce barriers to US exports which have been strong in the upturn to date. (These first two are relatively easy almost no brainers.)

  3. There is a long term fiscal issue with unfunded liabilities and a short term weak economy problem. The Supercommittee might be a vehicle that could put forth a long term deficit reduction plan-back loaded with spending and tax changes with upfront infrastructure spending financed by bonds backed by user payments-tolls etc. Equity says let the user pay and it gets us away from the idea that it is free Federal money. Everything has to be on the table-for the D's entitlements and the R's taxes. There were two blueprints issued last fall from the President's Commission and the Debt Reduction Task Force. Do a 1986-lower tax rates and broaden the base. Tax expenditures should not be ignored despite the special interest howls. A deal might decrease uncertainty and fear.

  4. We have low nominal interest rates, but many people cannot refinance given the declines in value. With mortgages backed by Fannie and Freddie make it easier to refi for people who are still current. It could be combined with principal reduction and a claw back so that if the property is sold for a higher value in the future most of the increase in value goes back to the agency. The idea is that it might reduce downward price pressure and the string of foreclosures, speeding the housing correction while minimizing moral hazard and strategic defaults.

  5. A decade ago this week, we lowered our voices and came together for a while to deal with a crisis. The problems we face now have both short and long term elements. In the short term look at policies ( Regulatory, Environmental, etc..) through the prism of job creation and incentives, while at the same time acknowledging that over time Federal spending including entitlements-Medicare, Social Security, Medicaid must change. People have to be given time to adjust, current recipients and near retirees do not have the time, but others do.

Oregon, like most other states is in a slow recovery. These are national ideas not specific to Oregon, but speeding the housing rebound and increased trade would impact the state disproportionately.

Charles Sheketoff, executive director, for the Oregon Center for Public Policy

  1. Launch an Economic Marshall Plan for the American people — a large (and seriously overdue) investment in the nation's infrastructure. The public investments would be implemented in large part by private sector workers -- retrofitting schools (such as Fix America's Schools Today! (FAST!) - a national program like Oregon's cool schools initiative) and upgrading transportation systems, for example.

  2. Provide fiscal relief for states, so that states can avoid cuts that are dragging down the economy such as the cuts to schools in Oregon that have increased class size and led to thousands of layoffs.

  3. Invest in boosting our manufacturing base, especially in manufacturing for the green economy (wind turbines, blades and towers, for example).

  4. Invest in training and education for workers in services that cannot be exported and are needed in the economy, such as medical tech workers, nurses, etc.

  5. Support startup of small businesses - help with obtaining capital (not by tax breaks for investors).

"How will the government pay for this?" you ask. Pay for these investments by raising taxes on the super-rich and eliminating tax loopholes and subsidies benefiting the wealthy and corporations.

What Oregon can do

  1. Restore some of 2011 budget cuts to education and health and human services, and pay for the restorations in part by keeping Measure 66 top tax rates in place (they go away in 2012, lining the pockets of the wealthiest Oregonians with about $130 million this budget period) and closing tax loopholes and subsidies benefit the wealthy and corporations. Public sector spending creates both public AND private sector employment.

  2. Create the Oregon State Bank to help free up capital for small businesses and small business startups.

  3. Raise the purchasing power of low- to moderate-income working Oregonians through an increase in the state Earned Income Tax Credit and by vigorously fighting wage theft. Both will help boost consumer demand in Oregon.

Steve Buckstein, founder and senior policy analyst at Cascade Policy Institute

  1. Reduce or eliminate the Oregon's corporate income tax, capital gains tax and estate tax to reverse the perception that Oregon is not business-friendly.

  2. Repeal Measure 66 top personal income tax rates to encourage entrepreneurs to remain in/or relocate to Oregon.

  3. Reduce interventions in the energy marketplace, including subsidies for non-economic sources such as wind and solar.

  4. Allow local governments to opt-out of Oregon's punitive and dysfunctional statewide land-use regulatory system. Let local communities decide what they need to return to economic prosperity.

  5. Repeal unnecessary barriers to entry for new/expanded businesses (e.g., cartel rules, taxes/fees, onerous permit reviews, expensive SDC requirements that have nothing to do with the actual impact of a new building on a community.)

Bill Conerly, an economist with Conerly Consulting LLC and chairman of the Cascade Policy Institute

Before listing my top 5 ways, understand that there are no magic bullets for this economy. Any politician who says he or she can jump-start the economy is either an idiot, a liar, or possibly both. It took years of over-building to generate a large surplus of housing, and it took years of spending to generate huge levels of consumer and government debt. Consequently it will take some years still before the economy is back to normal. There's no short-run fix for the problems that ail the economy.

Now, my top five list:

  1. The Fed should keep expanding the money supply; they have been very erratic on that, but looking better lately.

  2. Reduce regulatory uncertainty regarding the two big unknowns, Dodd-Frank and Obamacare. In both cases, the bills are massive and direct a huge rule-making process. Although it's been quite some time since the laws were passed, businesses still don't know the rules that will be required for implementation. Whatever issues cannot be fast-tracked should be shelved by Congressional action.

  3. Develop a credible long-term fiscal plan for the United States. In normal conditions, Keynesian policy works (though at a smaller magnitude than the hard-core Keynesians believe). These days, however, fear of future tax hike because of the deficits are limiting consumer spending. Instead of making up for lost time by purchasing cars, TVs, and clothing, families are delaying expenditures so that they can build up their nest eggs.

  4. Bank regulators need to dial back one notch in their review of bank lending. Experienced bankers are still being second-guessed by inexperienced new-hires working for the regulatory agencies. On close calls, the regulators are always critical of business loans.

  5. Focus government spending on activities with high "bang for the buck." The pork barrel projects (such as the bridge to nowhere) create some short-term construction jobs, but provide little long-run support for economic activity. And the short-run job impact is offset by the negative impact of a larger deficit or higher taxes. The long run impact can be beneficial if the project is truly useful. The use of Congressional earmarks is indicative of projects that don't pass the "bang for your buck test."

For Oregon, we are mostly waiting for the national economic recovery. There is little that we can do in the state to put the state on a different course than the nation as a whole. Oregon should copy the regulatory reform policies I recommend for the U.S. However, again there is nothing that can be done to jump start the Oregon economy.

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